Karnataka High Court
Official Liquidator Of M/S Murugan ... vs Sri T S Viswanathan on 24 March, 2022
Author: B. M. Shyam Prasad
Bench: B. M. Shyam Prasad
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 24TH DAY OF MARCH, 2022
BEFORE
THE HON'BLE MR. JUSTICE B. M. SHYAM PRASAD
COMPANY APPLICATION NO.913 OF 2007
IN
COMPANY PETITION NO.19 OF 1999
BETWEEN :
OFFICIAL LIQUIDATOR OF
M/S MURUGAN POWER SYSTEMS
PRIVATE LIMITED(IN-Liqn.)
ATTACHED TO THE
HIGH COURT OF KARNATAKA,
4TH FLOOR,'D' AND 'F' WING,
KENDRIYA SADAN,
KORAMANGALA,
BANGALORE - 560 034.
... APPLICANT
(By Sri. K. S. MAHADEVAN ADVOCATE)
AND :
1. SRI T. S. VISWANATHAN
NO.223, N.S.C.BOSE ROAD,
YMCA BUILDING, II FLOOR,
CHENNAI-600 001.
2. SRI HARINIVAS CHOWDHURY
NO.65, N.S.C.BOSE ROAD,
CHENNAI-600 079.
2
3. SRI KRISHNANIVAS CHOWDHURY
NO.65, N.S.C.BOSE ROAD,
CHENNAI-600 079.
4. SRI VIJAY GARODIA
FLAT NO.307-B, PLOT 121,
GARDIANAGAR,
MUMBAI.
...RESPONDENTS
(By SRI.B.N.PRAKASH ADVOCATE FOR R1;
SRI.VENKATESH S.ARABATTI, ADVOCATE FOR R2 TO R4)
THIS COMPANY APPLICATION IS FILED UNDER
SECTION 543(1) OF THE COMPANIES ACT, 1956, READ
WITH RULE 260 OF THE COMPANIES (COURT) RULES,
PRAYING THAT, FOR THE REASONS STATED THEREIN,
THIS HON'BLE COURT MAY BE PLEASED TO SUMMON
THE RESPONDENT Nos.1 TO 4 IN THE APPLICATION FOR
THE PURPOSE OF EXAMINATION IN REGARD TO THE
MATTER SPECIFIED THEREIN AND ETC.
THIS COMPANY APPLICATION COMING ON FOR
FINAL DISPOSAL, THIS DAY, THE COURT MADE THE
FOLLOWING:-
ORDER
The Official Liquidator, who is in charge of the Company -in liquidation, M/s.Murugan Power Systems Private Limited, has commenced this proceeding under Section 543(1) of the Companies Act, 1956 (for short 'the Act') and the proceeding stems from the Official 3 Liquidator's case that the respondents/ex-Directors of the Company in liquidation have failed to account for the following amounts:
Sl No. Description of the Amount
Amount
1 The amount "Cash in Hand" Rs.10,410/-
and "Cash at Bank"
2 The amount payable by Rs.16,29,555/-
Sundry Debtors
3 The amount deposited by Rs.14,000/-
the Company with others
The Official Liquidator contends that the respondents must be called upon to pay these amounts along with interest at the rate of eighteen per cent per annum because they are in violation of their fiduciary responsibilities.
2. Though the Official Liquidator contends that the respondents have not accounted for Rs.10,410/ - as "Cash in Hand" and "Cash at Bank", it is admitted that at the time of evidence the claim under this head is 4 confined to Rs.910=00. Even as regards the amount of Rs.910=00, the Official Liquidator does not contest the respondents' case that this amount was available in the Company's Current Account as on the date of the winding up order (08.10.2002) and the amount is not later reflected because the Bank has deducted certain charges as the Current Account was not operated after the winding up order.
3. As regards the amount of Rs.14,000/- under the head "Deposits", the Official Liquidator's case is that this amount is deposited by the Company with different statutory Authorities/Boards and this amount is lost because the respondents have not handed over the receipts. However, in the cross-examination, the Official Liquidator's witness has stated that the Official liquidator has corresponded with the concerned Authorities/Boards to recover the amount after the winding up order without placing further material 5 documents. It is also not seriously contested that there is no material to show that this amount has been withdrawn by the respondents or the respondents are responsible for the loss of this amount.
4. In the aforesaid circumstances, the Official Liquidator's application insofar as these amounts viz., the amounts under the head of "Cash in Hand" and "Cash at Bank" and "Deposits" with statutory Authorities/Boards, must be rejected. In that event what remains to be examined is whether there is any cause for directions against the respondents under Section 543 of the Act for the other amount of Rs.16,29,555/.
5. The Official Liquidator contends that this amount of Rs.16,29,555/- was due from the Company's Sundry Debtors even as on the date of the pending of the petition. The respondents should have initiated 6 proceedings to recover this amount, but they have not initiated any action until the date of winding up order to recover this amount. There is deliberate failure and as such, there must be a direction under Section 543 of the Act to the respondents to pay this amount along with interest. As against these contentions, the respondents contend that legal notices were issued to Sundry Debtors and these debts were not time barred as on the date of the winding up of the Company and were also not barred as on the date of the petition. As such, the Official Liquidator, given the exclusion of time under the provision of Section 458A of the Act, should have initiated action for recovery of these amounts.
6. At this stage, this Court must observe that there is no dispute that as against one of the Sundry Creditors, the respondents have initiated winding up proceedings before the Calcutta High Court. But, neither the respondents nor the Official Liquidator have 7 prosecuted this petition. The Official Liquidator contends that the respondents, who had initiated the proceedings, should have conducted, and the Official Liquidator also contends that the recovery proceedings have not been initiated for want of financial ability.
7. Sri. B N Prakash, the learned counsel for the respondents submits that the Official Liquidator is categorical in his cross-examination that there cannot be specified acts of misfeasance against each of the respondents or breach of trust by them. The learned counsels, relying upon the decision of this Court in Official Liquidator of Dunford Fabrics Limited vs. G.C.Lohia and others, [(2007) 138 Comp.Cases 362], submits that if the Official Liquidator cannot be specific about the acts of each of the respondents/Directors, there cannot be proceedings under Section 543 of the Act. He emphasizes that in similar circumstances where there was no specific allegation of misfeasance or 8 misconduct against the ex-Directors and the entire case of misfeasance or misconduct was based on the entry in the balance sheet, this Court has opined that the concerned cannot be found guilty and therefore action cannot lie under Section 543 of the Act.
8. Sri. B N Prakash relies upon Exs.R-2 to 24 to contend that the respondents, as on the date of the petition for winding up, had issued legal notices to pave way for initiation of legal proceedings for recovery and winding up proceedings were also admittedly initiated. He submits that in the absence of specific acts of misfeasance and breach of trust against the respondents and the indefatigable facts borne out by Exs. R-2 to 24, which substantiate that the respondents had bona fide initiated action before winding up order, there cannot be proceedings under Section 543 of the Act.
9
9. In the afore circumstances and the rival submissions, the question for consideration is:
Whether this Court could opine, in the circumstances as brought out by the evidence on record, that the respondents are guilty of misfeasance or misconduct so as to be liable to answer the claim for recovery or realisation of a sum of Rs.16,29,555/- under Section 543 of the Act.
10. It is obvious from the perusal of the records that the Official Liquidator does not specify particular acts of misfeasance or breach of conduct to each of the respondents. As found in paragraph-3 of the affidavit of PW.1, the allegation is that the respondents have either misapplied or retained or liable to repay the amount as mentioned therein. Thus, the Official Liquidator's case is based on a general statement that a sum of Rs.16,41,465/- was due to the company according to the Balance Sheet as of 08.10.2002 [as of the date of the 10 winding up order] and the respondents have misapplied or retained or are guilty of breach of trust.
11. If in law the test is that there must be specific allegations against each of the respondents for an action under Section 543 of the Act - a position that is uncontested on behalf of the official Liquidator - the absence of specific/particular allegations against each of the respondents would gain importance. Importantly, it is undisputed that as of the date of winding up petition in the year 1999, the respondents had caused legal notice to the sundry creditors from whom a total sum of Rs.16,41,465/- was recoverable as of 08.10.2002. If this cause has continued as of the date of the winding up order, another facet which is not seriously disputed by the Official Liquidator, the failure to initiate action by itself, would not justify initiation of the proceedings under section 543 of the Act. 11
12. This Court in Chamundi Chemicals and Fertilisers Ltd (in liquidation) v MC Cherian reported in ILR 1993 Karnataka 620, referring to a Division Bench judgment of the Madras High Court in Official Liquidator v. G Shanmugam has held as follows:
"It is relevant to analyse section 543 of the Act. It enumerates the power of the Court to assess damages against the delinquent Directors mulcting them with the damages for not acting reasonably and thus committing company to unnecessary loss. The proceeding however does not extend to any and every kind of claims which the company may have against the delinquent Directors. Thus, it is only misfeasance which includes breach of duty, breach of trust resulting in loss to the company will come of section 534 of the Act. Mere negligence or neglect of duty will not by itself create liability unless there was gross negligence amount in to misfeasancare breach of duty resulting in loss to the company."
13. This Court, in the facts and circumstances of this case, is of the considered view that this proposition 12 would apply in all fours and the proceedings against the respondents under section 543 of the Act must fail. Therefore, the question is answered in favour of the respondents and the application in Company Application No.913 of 2007 stands disposed of.
Sd/-
JUDGE RK/- & AN/-